FACULTY OF ECONOMICS AND BUSINESS
BRAWIJAYA UNIVERSITY
2014
A. Basic Concepts
Management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies. MCS influences the behavior of organizational resources to implement organizational strategies. MCS might be formal or informal.
Control
An organization must be controlled to ensure that is strategic intentions are achieved. But controlling an organization is much more complicated than controlling devices. Every control system has at least four elements: 1. Detector or sensor
Device that measures what is actually happening in the process being controlled. 2. Assessor
Device that determines the significance of what is actually happening by comparing it with some standard or expectation of what should happen. 3. Effector
Device that alters behavior if the assessor indicates the need to do so 4. Communications network
Device that transmit information between the detector and the assessor and between the assessor and the effector.

Management
An organization consists of a group of people who work together to achieve certain common goals (in business organization a major goal is to earn a satisfactory profit). The management control process is the process by which managers at all levels ensur that the people they supervise implement their intended strategies.

Elements of control system that used by managers: 1. Detector
To report what is happening throughout the organization 2. Assessor
To compare the information with the…...

Similar Documents

...Management control systems provide information that is intended to be useful to
managers in performing their jobs and to assist organizations in developing and
maintaining viable patterns of behaviour. Any assessment of the role of such information
therefore requires consideration of how managers make use of the information
being provided to them.
management control describes a feedback process of planning, objective setting, monitoring, feedback and corrective action to ensure that outcomes are in accordance with plans. Two attempts have been made in the past to link this framework with strategy. The first is Anthony’s ( 1965, 1988) - strategies are taken as given and management control systems motivate,
monitor and report on their implementation. Another attempt to couple strategy and management control can be seen in the concept of strategic control. Strategic control has been described as a system to assess the relevance of the organization’s strategy to its goals, and when
discrepancies exist, to highlight areas needing attention.
My research indicates that management control systems are not only important for strategy implementation, but also for strategy formation. I define management control systems, therefore, to recognize that these systems are more than devices of constraint and monitoring:
management control systems are the formalized procedures and systems that use information to maintain or alter patterns in organizational activity. Using this definition, these...

...IDEAL management control system?
Management control is a process of assuming that resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives. It is a fundamental necessity for the success of a business and hence from time to time the current performance of the various operations is compared to a predetermined standard or ideal performance and in case of variance remedial measures are adopted to confirm operations to set plan or policy.
Some of the features of MANAGEMENT CONTROL SYSTEM are as follows:
➢ Total System: MANAGEMENT CONTROL SYSTEM is an overall process of the enterprise which aims to fit together the separate plans for various segments as to assure that each harmonizes with the others and that the aggregate effect of all of them on the whole enterprise is satisfactory.
➢ Monetary Standard: MANAGEMENT CONTROL SYSTEM is built around a financial structure and all the resources and outputs are expressed in terms of money. The results of each responsibility centre in respect to production and resources are expressed in terms of a common denominator of money.
➢ Definite pattern: It follows a definite pattern and time table. The whole operational activity is regular and rhythmic. It is a continuous process even if the plans are changed in the light of experience or technology.
➢ Coordinated System: It is a fully coordinated and integrated system.
➢ Emphasis: Management control......

...Management Control System Notes
Ch. 1 – The Nature of MCS
Simons Levers of Control
Belief systems: empower individuals and encourage them to search for new opportunities. They communicate core values and inspire all participants to commit to the organization’s purpose. COMMITMENT
Boundary systems: establish the rules of the game and identify actions and pitfalls that employees must avoid. PUNISHMENT
Diagnostic controls systems: allow managers to ensure that important goals are being achieved efficiently and effectively. They eliminate the manager’s burden of constant monitoring. However, they can create pressures that can lead to control failures.
Interactive control systems: enable top‐level managers to focus on strategic uncertainties, to learn about threats and opportunities as competitive conditions change, and to respond proactively.
* Management control systems are set in place to help a company achieve their organizational strategy and goals.
* Work of management: planning, directing and motivating, and controlling.
* An organization consists of a group of people who work together to achieve certain common goals.
* The CEO or senior management decides on the overall strategies that will enable the organization to meet its goals.
* The management control process is the process by which managers at all levels ensure that the people they supervise implement the organization’s strategies.
* System: a prescribed and usually repetitious way......

...small rural towns.
2. How do Wal-Mart’s control systems help execute the firm’s strategy?
Answer :
* Each store constituted an investment center and was evaluated on its profitsrelative to its inventory systems. Data from over 5,300 stores on its such assales, expenses, and profit and loss were collected, analyzed, and transmittedelectronically on a real-time basis, rapidly revealing how a particular region,district, store, department within a store, or item within a department isperforming. Information enables the company to reduce the likelihood of stock-outs and the need for markdowns and slow moving stock, and tomaximize inventory turnover.
* Wal-Mart instituted several other policies and programs for its associates:incentive bonuses, a discount stock purchase plan, promotion from within, payraises based on performance not seniority, and an open-door policy.
* Wal-Mart had also persuaded its suppliers to have electronic “hook ups” with its store.
* Wal-Mart owned its trucks when most competitors outsources trucks.
Case 1-3 Xerox Corporation (A)
1. Outline the management control system at Xerox. What are the key elements that make the system work?
Xerox's management control system concentrated and focused on the responsibility and performance of 12 units, which consisted of 9 business units and 3 geographic customer operations divisions supporting them. The main focus for Xerox management is the business management level that linkages markets and......

...
The Formal Control Process
No
Yes
Communication
Feedback
Measurement
Corrective action
Revise
Revise
Responsibility center performance
Rules
Budgeting
Report actual versus plan
Was Performance satisfactory
Other
information
Strategic Planning
Goals and strategies
Goals:
The overall objectives, purpose and mission of a business that have been established by its management and communicated to its employees. The organizational goals of a company typically focus on its long range intentions for operating and its overall business philosophy that can provide useful guidance for employees seeking to please their managers.
Goals are predetermined and describe future results toward which present efforts are directed.
Rules.
A business rule is a rule of a business, company, or corporation. It is a rule that defines or constrains some aspect of business and always resolves to either true or false. Business rules are intended to assert business structure or to control or influence the behavior of the business.Business rules describe the operations, definitions and constraints that apply to an organization. Business rules can apply to people, processes, corporate behavior and computing systems in an organization, and are put in place to help the organization achieve its goals.
For example a business rule might state that no credit check is to be performed on return customers. Other examples of business rules include requiring a rental agent to disallow a rental......

...Introduction
Management control system (MCS), as a vital part of an organization, which purpose allows organizations to ensure that their activities achieve the objects they desire. The process of designing and improving MCSs requires addressing three basic questions. What is desired? What is likely to occur? And What is the effect of contextual factors ?Then managers must address each of these questions. What controls should be used?
In recent years, contingency-based research has maintained its popularity with studies including these variables but redefining them in contemporary terms. This paper provides a critical review of findings from contingency-based studies over the past 20 years, deriving a series of propositions relating MCS to organizational context. The paper examines issues related to the purpose of MCS, the elements of MCS, the meaning and measurement of contextual variables, and issues concerning theory development (Robert H. Chenhall 2003).
on the effect of contextual variables on the design of Management Control System (MCS). It is tests the effect of each contextual variable on the relationship between MCS design and performance by using survey instruments. It is demonstrates that contextual variables contribute to the design of MCS. The following sections describe how to address each of these questions.
What it is the organization Objectives and, more importantly, strategies that are derived from a good understanding of the organization’s......

...ijcrb.webs.com
OCTOBER 2010
VOL 2, N O 6
INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS Management Control System
Hamed Armesh Faculty of Management ,MMU,Malaysia
Listed in ULRICH S
Dr. Habibollah Salarzehi , Dr.Baqer Kord Faculty of Management, University of Sistan and Baluchestan Abstract A management control systems (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole considering the organizational strategies. Finally, MCS influences the behaviour of organizational resources to implement organizational strategies. Keywords: Management , Control , Systems 1. Introduction To introduce this topic and understanding the importance of management control system we know that In the present globalised world, organisations need to use management control systems that go beyond the strategies that focus on acquisition of technology and logistics which are not sufficient to give the organisation sustained long-term competitive edge over its competitors. Management Control Systems (MCS) as defined by Anthony (cited by LangfieldSmith, 1997) is the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organization s objectives . MCS is a system used in an organization which collects and uses information to evaluate the performance of the organizational......

...Management control systems
Solutions to Chapter 16 questions
(a) See Chapter 16 for the answer to this question. In particular, your answer should stress: (i) The need for a system of responsibility accounting based on a clear definition of a manager’s authority and responsibility. (ii) The production of performance reports at frequent intervals comparing actual and budget costs for individual expense items. Variances should be analysed according to whether they are controllable or non-controllable by the manager. (iii) The managers should participate in the setting of budgets and standards. (iv) The system should ensure that variances are investigated, causes found and remedial action is taken. (v) An effective cost control system must not be used as a punitive device, but should be seen as a system that helps managers to control their costs more effectively. (b) Possible problems include: (i) Difficulties in setting standards for non-repetitive work. (ii) Non-acceptance by budgetees if they view the system as a punitive device to judge their performance. (iii) Isolating variances where interdependencies exist. (a) See ‘Planning’, ‘Motivation’ and ‘Performance evaluation’ in the section on the multiple functions of budgets in Chapter 15 for the answer to this question. The answer should emphasize that the role of motivation is to encourage goal congruence between the company and the employees. (b) See ‘Conflicting roles of budgets’ in Chapter 15 for an explanation of how...

...management control system
targets. Therefore, conventional management control systems focus on getting better operational efficiency. But as operational efficiency is no longer adequate to create sustainable competitive advantages, management control systems must be expanded to managerial practices that cultivate employee cooperation and creativeness in the discovery and development of new business opportunities. This is especially the case in the high-tech industries that are at the faced with the challenges of globalisation and employee teams must combine efficient communication with creativity. ``Project managers and product designers in software and other industries thus need to find ways to divide up products and tasks so that even teams of many of clever people can work and communicate efficiently as well as creatively'' (Cusumano, 1997). Simons (1987 and 1990) argued that control systems is in four categories, namely i. ii. iii. iv. Diagnostic control systems Boundary control systems Interactive systems Belief systems. These four different management control systems are identified recently by companies as effective categories of controlling system, companies must apply them in a way that maximizes operational effectiveness without limiting employee creativity. This task can be accomplished by using diagnostic measures as a way to improve operational effectiveness and the other three types of control measures as a way to mitigate its negative effects on employee......

...Abstract
Management control systems are tools to aid management for steering an organization toward its strategic objectives and competitive advantage. Management controls are only one of the tools which managers use in implementing desired strategies. However strategies get implemented through management controls, organizational structure, human resources management and culture.
In this paper we will discuss how management control system is implemented in various sectors of an pharmaceutical company ie. “GlaxoSmithKline Bangladesh Limited”. GlaxoSmithKline Bangladesh Limited carries with it an enviable image and reputation for the past 6 decades. A subsidiary of GlaxoSmithKline (GSK) is one of the world’s largest research-based pharmaceutical and healthcare companies GSK Bangladesh, continues to be committed to improving the quality of human life by enabling people to do more, feel better and live longer. The Company’s principle activities include secondary manufacture of pharmaceutical products and marketing of vaccines, pharmaceutical and healthcare products.
GlaxoSmithKline Bangladesh Limited implements many control systems to attain their strategic objectives and competitive advantages. Some models that GlaxoSmithKline uses to make their activities and resources effective & efficient, for their employee performance evaluation and to enhance the overall performance of the organization will be discussed in this paper.
Management Control Systems
......

...Political Science
David Smith
Monash University
Social capital
The role of management control
systems in NGOs
Research executive summary series
Volume 6 | Issue 6
Key findings:
• Non-governmental organisations (NGOs) are being confronted with the
competitive nature of acquiring funds and need to demonstrate that they have
particular competencies to funders, while at the same time continuing to adhere to
their traditional welfare or development values.
• The evidence shows that developing formal management controls can help NGOs
to develop networks with government departments, funding agencies, other service
providers and clients. However, formal management controls also have the potential
to damage the internal bonding between employees.
• Developing belief systems to incorporate financial concerns, along with traditional
welfare goals, would seem a useful starting point in the move towards managing in
a more competitive NGO sector.
Overview and objectives
In recent years non-governmental organisations (NGOs)
have become increasingly important in addressing
humanitarian issues relating to welfare and developmental
aid. NGOs face increasing pressure to demonstrate
service delivery in cost efficient ways. This creates tension
over delivering welfare services while operating within
the constraints of cost management. The application of
management control systems has the potential to help in
the effective and efficient delivery of services,......

...Chapter 1 Management and Control
Management control is a critical function in organisations. Management control failures can lead to large financial losses, reputation damage and possibly even to organizational failure. Reality shows us (in some examples illustrated on page 3-4) the importance of having good management control systems (MCS). However, adding to much control does not always lead to better control. Some MCS’s in common use often stifle initiative, creativity, and innovation. I.e. in organisations with a lot of bureaucracy a culture with a lack of responsibility can occur and due to the slow, bureaucratic processes people can find ‘creative’ ways to speed up this process.
That good MCS’s are important is widely accepted, but within the field of MCS’s there are different views. An old, narrow view of a MCS is that of a ‘cybernetic’ system involving a single feedback loop. You can compare measuring performance with a thermostat; They measure the temperature, compare those measurements with the desired standard, and, if necessary, take a corrective action (turn on or off). This book, however, takes a broader view. It recognizes that may management controls in common use, such as direct supervision, employee-hiring standards and codes of conduct do not focus on measured performance. The focus instead on encouraging, enabling or, sometimes, forcing employees to act in the organization’s best interest. MCS can rather be proactive (to prevent) than reactive. The......

...Q.1 How is RI (EVA) analysis carried out? Explain advantages and disadvantages.
Ans. The EVA method is based on the past performance of the corporate enterprise. The underlying economic principle in this method is to determine whether the firm is earning a higher rate of return on the entire invested funds than the cost of such funds (measured in terms of weighted average cost of capital, WACC). If the answer is positive, the firm’s management is adding to the shareholders value by earning extra for them. On the contrary, if the WACC is higher than the corporate earning rate, the firm’s operations have eroded the existing wealth of its equity shareholders. In operational terms, the method attempts to measure economic value added (or destroyed) for equity shareholders, by the firm’s operations, in a given year.
Since WACC takes care of the financial costs of all sources of providers of invested funds in a corporate enterprise, it is imperative that operating profits after taxes (and not net profits after taxes) should be considered to measure EVA. The accounting profits after taxes, as reported by the income statement, need adjustments for interest costs. The profit should be the net operating profit after taxes and the cost of funds will be the product of the total capital supplied (including retained earnings) and WACC
EVA= [Net operating profits after taxes – [Total Capital * WACC]
Example; Following is the condensed income......